GBP/JPY retakes 157.00 mark and beyond, climbs to two-day tops

• GBP/JPY gained strong follow-through traction for the second successive day on Tuesday.
• The dominant risk-on mood weighed on the safe-haven JPY and provided a goodish boost.
• BoE rate hike expectations continued underpinning the sterling and remained supportive.

The GBP/JPY cross continued scaling higher through the early part of the European session and surged past the 157.00 mark in the last hour. The cross was last seen trading near two-day tops, around the 157.20-25 region, up over 0.40% for the day.

A combination of supporting factors assisted the GBP/JPY cross to build on the overnight rebound from sub-156.00 levels and gain some follow-through traction for the second straight session on Tuesday. The dominant risk-on mood in the markets undermined the safe-haven Japanese yen. This, along with a modest pickup in demand for the British pound, provided a goodish lift to the cross.

The British pound remained well supported by the recent hawkish remarks from the Bank of England officials, signalling an imminent interest rate hike this year. In fact, the BoE Governor Andrew Bailey warned recently that rising energy prices means inflation will last longer and that the UK central bank will have to act amid increasing risks to medium-term inflation expectations.

Moreover, the BoE’s new chief economist Huw Pill also said last week that inflation in the UK could rise above 5% by early next year. Pill added that the MPC is finely balanced over whether to raise rates in November. Currently, the markets suggest a 62% chance that the MPC will hike rates by 25 basis points, increasing the relevance of the upcoming BoE monetary policy meeting next week.

Meanwhile, the ongoing positive move seemed rather unaffected by a fresh row over the Northern Ireland protocol. It is worth reporting that the UK's Brexit minister has rejected a compromise plan over the question of how much power EU judges should have in Northern Ireland. Lord Frost further noted that the EU's current proposals don't go far enough and has set a December deadline to find a solution.

This, in turn, warrants some caution for aggressive bullish traders and positioning for any further appreciating move. Hence, any subsequent positive move is more likely to confront a stiff resistance and remain capped. Nevertheless, the GBP/JPY cross still seems poised to climb further towards reclaiming the 158.00 mark, which is followed by over five-year tops, around the 158.20 region.

Technical levels to watch